MUMBAI: Indian government bond yields are expected to fall in early trading on Wednesday as U.S. yields continued to trend lower after weak economic data increased bets that the Federal Reserve’s higher policy rates may not sustain for long.
The benchmark 7.26% 2033 bond yield is likely to be in the 7.15%-7.20% range after ending the previous session at 7.1880%, a trader with a private bank said.
“There should be some bullish momentum in opening trades, but still we may not see the break of 7.15% convincingly, as local factors like inflation worries and liquidity outlook are clouded by uncertainty,” the trader said.
U.S. yields dropped to three-week lows on Tuesday after data showed job openings in July fell more than expected. U.S. job openings fell to the lowest level since March 2021, with the labour market gradually slowing.
The Job Openings and Labor Turnover Survey, or JOLTS report, from the Labor Department also showed the number of people quitting their jobs dropped to levels last seen in early 2021, indicating that Americans were becoming less confident in the labour market.
The 10-year yield inched towards 4.10%, more than 25 basis points lower than the 16-year high levels touched last week. The odds of a rate hike in September have eased further.
In India, traders will keep an eye on the domestic inflation trajectory as well as evolving liquidity conditions, which will act as major cues.
India’s retail inflation spiked to a 15-month high of 7.44% in July from 4.87% in June. The inflation rate will remain above the Reserve Bank of India’s upper tolerance band at least until October, according to a Reuters poll of economists.
The RBI aims to keep inflation at 4%, with a tolerance band of 2% on either side.
Key indicators:
Brent crude futures 0.4% higher at $85.80 per barrel, after rising 1.3% in the previous session
10-year U.S. Treasury yield at 4.1256%, two-year yield at 4.9046%
RBI to auction Treasury bills worth 240 billion Indian rupees
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